Billions of dollars -- that's what identity theft costs U.S. businesses and consumers each year. New research clearly demonstrates that online banking, bill payment and statement viewing is one of the best ways businesses and their customers can protect themselves against identity theft. Yet, consumers still believe incorrectly that online financial transactions increase their risk of fraud. This notion is incorrect.

Based on findings from Federal Trade Commission and United States Postal Service reports, Javelin Strategy & Research found that two popular kinds of identity theft, fraudulent opening of new accounts and unauthorized use of existing accounts, are frequently traced to theft of paper documents in residential mailboxes and other locations, including incoming statements, new account solicitations and outgoing checks. But by changing bill presentment policies by offering electronic bills and the ability to suppress paper, banks and billers can significantly reduce fraud due to ID theft.

Research analysis by James Van Dyke, founder and principal analyst of Javelin Strategy & Research, and author of the new report, discovered that businesses can quickly implement the following four steps to help reduce fraud and break down consumer misperceptions:

• Educate customers - Customers who view their statements online are more likely to quickly identify potentially fraudulent activities on an existing account and alert businesses to it, allowing restoration and resolution to begin. Consumer education on the benefits of viewing statements and paying bills online can result in savings both from paper suppression and early fraud detection, plus promote stronger customer adoption and retention.
• Listen to customers' needs and act - The new Javelin data suggests that financial institutions and billers should enable online statements at a customer's request and offer the option to turn off traditional paper mail for sensitive documents.
• Online consumers are the best detection of online identity theft - The Federal Trade Commission's October 2003 Identity Theft Survey Report found that 52% of all identity fraud was first discovered by the victim, often by reviewing traditional paper statements. However, by the time paper statements arrive to reveal a fraud incident, more time is likely to have passed, which in turn increases the value of potential fraud and makes prosecution more difficult for the financial institution or biller. Online consumers check accounts nearly four times per month, as compared to one time much later in the month for those who rely on paper statements.
• Proactive account alerts and activity summaries - Use of active e-mail alerts, consolidated summaries of balances and transactional activity can significantly reduce fraud.